Markets bet Trump will end Iran war soon despite both sides’ threats
Market Scorecard
Four days in a row of green markets, we will take that! Since Tuesday last week, the S&P 500 is up over 5% as traders seem to feel more comfortable with the Fed's renewed comments about being tough on inflation.
The forward momentum built up over the last week won't mean anything today though, as US inflation data for August is released before the market opens. That will be at 14h30 SA Standard Time this afternoon. The expectation is that the CPI reading will slow from 8.5% to 8.1%, or be even better than that. Quickly slowing inflation reduces the need for aggressive interest rate hikes. Expect some big moves on the market today, either up or down.
In company news, Visa (NYSE:V) and Mastercard (NYSE:MA) are taking steps to track firearm sales. Elsewhere, Goldman Sachs (NYSE:GS) is resuming its annual tradition of cutting 500 low-performing bankers.
Yesterday the JSE All-share closed up 1.55%, the S&P 500 rose by 1.06%, and the Nasdaq gained another solid 1.27%.
One Thing, From Paul
Apple (NASDAQ:AAPL) is by far the most important holding in our client base. The aggregate value of shares in custody in New York is over $57 million, across 809 accounts.
A few years back, Apple traded at a big discount to the overall market. We complained in a newsletter that it was "was priced like a Chinese steel mill". In other words, it was given no respect at all, and was afforded a very low price-to-earnings ratio of around 10 times.
At that point, the "smart money" said that Apple couldn't innovate anymore because Steve Jobs was dead. Some said it was running out of people rich enough to buy iPhones, and that the annual handset upgrades were trivial and people would stick with their old models.
Well, that was all garbage. As Robert Armstrong, US Financial Commentator for the FT (that's him in the picture below) pointed out recently, "Apple shares have pulled off an amazing trick. They outperformed the market like a tech stock when tech stocks were hot. Then, this year, as tech has fallen out of favour, they have slightly outperformed the broad market and crushed other tech stocks".
He continues: "The result of this is that Apple now trades at almost as big a premium to the market as it ever has. Apple's widening premium over time can be partly explained by the transformation of the business. In the most recent quarter, 25 percent of revenues came from services. In 2016 the figure was 14 percent. More importantly, Apple has proven that it can sell iPhone fans top-end models on the back of only incremental improvements - and expensive supplemental products, too".
We love the products, the services, the story and the stock. You can still buy more Apple shares now.
Byron's Beats
There is a lot of debate about whether Meta (NASDAQ:META) will crack the metaverse. The gaming companies have a head start because gamers have embraced the virtual world already. Meta is going full steam ahead and has indicated that it will invest $10 billion a year to create virtual worlds for their social media users.
In January, they started working on an AI supercomputer that is due to be finished soon. I was very interested to see that the first phase of the development runs on a server system using 760 Nvidia GGX A100 chips with 6 080 connected GPUs. The second phase will contain 16 000 GPUs. Meta has become a huge Nvidia client.
It won't just be the metaverse where this supercomputer will be utilised. It will give Meta huge processing power for their existing businesses.
Michael's Musings
Apple iPhones have about 16% of the global smartphone market. Probably more significant is that it has 50% of the US smartphone market. As Paul mentioned above, services is becoming a bigger part of Apple's profits. Rich Americans are highly desirable customers.
Back in 2019 the iPhone was only 36% of the US smartphone market. I don't have an explanation for the growth in market share, but it's a trend we like to see. Once someone joins the Apple ecosystem, they are unlikely to leave. That means they will be buyers of future iPhones, but more importantly, consumers of Apples bolt-on services too.
You can see the rise of the iPhone's market share on this Visual Capitalist graph - iPhone Now Makes Up the Majority of US Smartphones.
Signing Off
Markets out East are having a positive day with Japan, Australia and Hong Kong all higher. Shanghai is flat. The US Dollar is weaker for the third day in a row, currently trading at $/R17.11.
As far as the market is concerned, the US inflation reading coming out later is all that matters. We will give you the details and the market reaction tomorrow.